A New Loan Option

Posted on February 3, 2022 by Cents Maker

Or, not so new, depending on if you’ve been exposed to it. I’m talking about Peer-to Peer lending.

After the Great Recession, and in response to the tighter lending practices of most major banks, this type of lending/borrowing was created.

In theory, it works much like a Credit Union, where members will save money, the Credit Union then lends money to other members, a kind of community effort. Unlike a Credit union, where a loan committee accepts or declines a prospective loan, with Peer-to Peer lending, individual investors decide which loans to support and how much.

An investor becomes a member of a Peer-to-peer “club” and with money to invest, can choose to support one or many loan requests, in some cases, in units as small as $25. A loan applicant will be reviewed, including credit risk, credit score and credit history…. much like the same as would be required by traditional lenders. If accepted, a loan agreement, including terms, interest rate etc. and a profile of the borrower would be made available to the member investors. Upon review of a prospective loan, the investor can choose to participate and to the extent they wish. This Funding phase will continue until the loan amount requested is reached and the funds are released. The investor will receive repayment as the loan is paid monthly (to the extent of their investment).

To be fair, this type of loan is not for everyone. For the borrower with a low credit score or, having been turned down for a loan from traditional sources, it could be an option. Loans can come with fees, higher interest rates and limits on how much can be borrowed and for how long. The investor here, carries all the risk; in particular if the borrower defaults. However, it remains appealing to some as they can invest small amounts as opposed to minimum investments elsewhere. (I should point out here, however, that things are changing as Large Institutions are making it ever easier for small investors to reap big rewards…. Read.. ”The Slice” Posted here Jul 2020).

In closing, I would simply say that for someone in need of a loan and with traditional sources unavailable to them, this can be a good option and for those investing, like any other investment, weigh the risk vs. reward.

Cents Maker

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You and Your Credit Card

Posted on July 14, 2020 by Cents Maker

It’s a real thing, the relationship we have with our credit card(s). And, just like any other relationship, we really shouldn’t take it for granted. How many of us actually scour each statement for improper charges or posted credits, when something is returned? Do we know, or even care when the “billing cycle” ends or when the “minimum due” date is? Do we really understand the terms and conditions of each card? … It’s all there, on each statement.

        If you’re like most everyone, your eyes likely glaze over when you try to read that stuff; but it’s essential to know just what’s going on.

        First things first; just about anyone can qualify for a credit card. The credit limit and APR (Annual Percentage rate) varies and depends largely on your credit score as well as other factors. Once established, your APR and credit limit can change, based on your payment history. Timely payments can help reduce your APR or increase your limit; while being late or not meeting the minimum due can be very costly. Some will try to improve their Credit Score by making multiple payments within the month, though a noble attempt, extra payments do not exempt you from making the minimum payment due by the due date. You’ll be in default or late and can incur hefty charges. Furthermore, multiple mishaps can change your APR to a “Penalty APR” that stays with you for several billing cycles.

        This being said, some may try to avoid late fees by setting up “auto” payments so as to never be late. This is all well and good, however, since minimum due amounts can vary month to month, a fixed “auto pay” amount may leave you under paid and in default, though not late.  Clever as this maneuver might be, one’s finances can be overburdened with unnecessary fees.

        So, what can be learned from a monthly statement? First, the APR can range from introductory rates of 0% to Penalty rates of 30%, and all on the same card. The 0% for xx months, is terrific to give some breathing room on a purchase or balance transfer (by the way, each transfer can cost up to 3%-5% of amount transferred), but watch out, the interest may merely be deferred, and due from day one if not paid in full by the xx months at the agreed 0%. Of course every day purchases can have a different APR, as can Cash Advances. Then there is the “plan” within the card; yeah, a different balance that is charged fees instead of interest and for a fixed term; creating a fixed monthly payment. Each “balance” on the same card each with it’s own min. due all due at the same time. And if you carry more than one card, this can be mind-boggling.

        Truth is, not many of us can escape the use of a credit card. You can’t make a hotel reservation or book an airline ticket without one. Heck, I’ve even been told,” NO cash. Card only. The best we can do is understand our obligations and this begins with spending time, just like any other relationship, getting to know more about them.

        Yours, Cents Maker

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